Billionaire Zhang Zhirong, who is at the centre of an insider-trading investigation involving China's biggest overseas acquisition attempt, has hired a specialist lawyer to help him negotiate with the US Securities and Exchange Commission (SEC) for a settlement.
People familiar with the matter told the South China Morning Post that Zhang wanted to avoid a fine by cutting a deal swiftly with the SEC to forfeit the multimillion-dollar profit the SEC alleged he made from trading stock in Canadian energy firm Nexen before CNOOC, China's largest offshore oil producer, unveiled a plan to acquire Nexen in a deal worth more than US$15 billion.
Usually, the US securities regulator fines people who profit illegally from insider trading three or more times the amount of profit they made.
Zhang told his lawyer, who specialises in SEC-related cases, that he wanted to minimise fines he might have to pay, the people said, asking not to be identified given the sensitivity of the matter. "He wants to make the big issue smaller and then turn the small issue into purely a money matter for him to resolve," one of the people said.
Zhang was also facing growing pressure from CNOOC, with which he used to have a good business relationship, to settle the SEC case quickly as the state-controlled energy company was lobbying relevant parties in Canada and the United States to support its proposed takeover of Nexen, the people said.
CNOOC did not want its bid for Nexen "to be politicised", one of the people said. "The [allegation] of Zhang's insider trading breaking out at this moment came as a very big surprise to CNOOC. It certainly damages the image of CNOOC."
Some US legislators and Canadian officials oppose the deal on the grounds that strategic energy resources should not fall into foreign hands. CNOOC is the Hong Kong-listed unit of China National Offshore Oil Corp.
Late last month, the SEC said traders at Well Advantage made more than US$7 million in illegal profits because they had prior information of the proposed CNOOC-Nexen deal. Well Advantage is a British Virgin Islands-registered company wholly owned by Zhang.
Zhang could not be reached immediately for comment yesterday. Hong Kong-listed Rongsheng Heavy Industries, the mainland's biggest closely held shipbuilder of which he is the founder and controlling shareholder, had said the ongoing SEC negotiations were his own "private matters", so it would not comment.
According to Forbes magazine, the personal wealth of Zhang, who was born in the eastern province of Jiangsu but has often lived in Shanghai since childhood, was estimated at US$2.6 billion as of March, making him one of the richest men in mainland China.
The US regulator did not disclose how Zhang obtained the alleged insider-trading tip-off about the deal. Some analysts believe the leak may have come from a senior CNOOC executive with whom he is personally close.
Usually, information about such big acquisitions as the CNOOC-Nexen deal would be given in confidence to only a handful of top company officials and directors, investment bankers say. Lawyers and bankers working on a deal are also bound by confidentiality agreements.
On Wednesday, CNOOC chairman Wang Yilin said at a media briefing on its first-half results that, following a request from the SEC, the company had conducted an internal inquiry into an alleged leak of insider information about the Nexen acquisition, and would give the information to the US regulator.
Additional reporting by Eric Ng